UNIT 3 - BEC

The distribution of overhead costs is known as:

cost allocation

Organizations focus on both financial and nonfinancial features of their operations to evaluate the degree to which they will be successful in their strategies. These financial and nonfinancial dimensions of their operations are sometimes referred to as:

critical success factors Financial and non-financial features of an organization that contribute to its success in achieving strategy are referred to as critical success factors and are normally classified as: Financial solvency and return Customer satisfaction Internal business processes, and Human resource innovation.

Wexford Co. has a subunit that reported the following data for Year 1: Asset turnover 1.5 Sales 750,000 Return on sales 8% The imputed interest rate is 12%. What is the division residual income for Year 1?

0 The residual income method measures the excess of actual income earned by an investment over the amount required to achieve a target or hurdle rate of return. The computation is simple; however, the fact pattern hides the basic information needed. Required data are computed as follows. Actual income earned is $60,000 (given sales of $750,000 times an 8% return on sales). The amount required to achieve the target rate of return is $60,000 (assets of $500,000 times 12%). Assets are computed to be $500,000 (sales of $750,000 divided by the asset turnover of 1.5). The imputed interest rate is the cost of capital or required return and is given at 12% of assets. Based on the above, division residual income is $0 (actual income of $60,000 minus required income of $60,000).

What is the cost of ending inventory given the following factors? Beginning inventory $ 5,000 Total production costs 60,000 Cost of goods sold 55,000 Direct labor 40,000

10,000 Beginning inventory 5,000 Add: Production costs* 60,000 Total Manufacturing costs available 65,000 Subtract: Cost of goods sold (55,000) Ending inventory 10,000

A company uses process costing to assign product costs. Inventory info is below. All beginning balances are zero. Inventory Material cost Conversion cost Started during period 15,000 75,000 55,500 Transferred out 13,500 End of period 1,500 The ending inventory was 25% complete as to the conversion cost. 100% of direct material was added at the beginning of the process. What was the total cost transferred out?

121,500 1. Computation of cost of materials transferred out: 100% of direct material was added at the beginning of the process. The cost per equivalent unit of material transferred out is computed as follows: $75,000 materials cost ÷ 15,000 inventory = $5.00 per unit Units transferred out = 13,500 units Materials cost transferred out $67,500 2. Computation of conversion costs transferred out Conversion costs of units started $55,500 Equivalent Units transferred out 100% × 13,500 13,500 Equivalent Units in ending inventory 25% × 1,500 375 Total equivalent units 13,875 units Conversion cost per equivalent units $4.00 per unit Units transferred out (13,500) × Conversion cost per EU ($4.00) $54,000 3. Computation of total costs transferred out Direct materials transferred out $67,500 Conversion costs transferred out 54,000 Total costs transferred out $121,500

The following information s for Taft Manufacturing company: Direct materials purchased 90,000 Direct materials used 86,000 Direct manufacturing labor costs 20,000 Indirect manufacturing labor costs 22,000 Sales salaries 14,000 Other factory expenses 32,000 Selling and Administrative expenses 20,000 What is the cost of goods manufactured?

160,000 Direct materials used 86,000 Direct manufacturing labor costs 20,000 Indirect manufacturing labor costs 22,000 Other factory expenses 32,000 160,000

Kerner Manufacturing uses a process cost system to manufacture laptop computers. The following information summarizes operations relating to laptop computer model #KJK20 during the quarter ending March 31: Units Direct Labor Work-in-process inventory, January 1 100 $50,000 Started during the quarter 500 Completed during the quarter 400 Work-in-process inventory, March 31 200 Costs added during the quarter $720,000 Beginning work-in-process inventory was 50% complete for direct materials. Ending work-in-process inventory was 75% complete for direct materials. What is the total value of material costs in ending work-in-process inventory using the weighted average unit cost inventory valuation method?

210,000 Computation of total value of direct labor costs in ending inventory using the weighted average method applied to process costing involves three steps: 1. Compute equivalent units of production 2. Compute the unit cost of production 3. Apply unit costs to the equivalent units in ending inventory Compute equivalent units of production Total units account for: Units accounted for as follows: Beginning WIP 100 Units completed 400 Units started 500 Ending WIP (75% complete) 200 Total 600 Total 600 Equivalent units of production for the quarter are 550 computed as follows: Units completed + completed portion of WIP (400 + (200 × 75%)) = 550 Compute the unit cost of production Total costs are computed as follows: Prior month cost 50,000 Current month cost 720,000 Total 770,000 Cost per unit is computed as follows: $770,000 ÷ 550 units = $1,400 per unit Apply unit costs to the equivalent units in ending inventory Total units in ending inventory 200 Percent complete × 75% Equivalent units 150 Equivalent units × cost per unit equals value of direct labor costs in ending inventory 150 units × $1,400 = $210,000 Proof (BASE) Beginning inventory $50,000 Add: Costs added during quarter 720,000 Subtract: Costs of goods completed (400 × $1,400)(560,000) Ending Inventory$210,000

James Webb is the general manager of the Industrial Product Division, and his performance is measured using the residual income method. Webb is reviewing the following forecasted information for his division for next year. Working capital 1,800 Revenue 30,000 Plant and equipment 17,200 If the imputed interest charge is 15% and Webb wants to achieve a residual income target of 2 million, what costs will he have to have to achieve this?

25,150,000 Working capital 1,800,000 Plant and equipment 17,200,000 Asset base 19,000,000 Times: Imputed interest rate × 15% Hurdle income 2,850,000 Add: Residual income target 2,000,000 Total target income 4,850,000 Revenue forecast 30,000,000 Less: Total target income (4,850,000) Costs to achieve target (25,150,000)

The following info pertains to Quest Co.'s Gold Division for CY: Sales 311,000 Variable cost 250,000 Traceable fixed costs 50,000 Invested capital 40,000 Imputed interest rate 10% Quest's return on investment was:

27.5% Return on investment equals net income divided by invested capital: ROI = Net income / Invested capital = ($311,000 − $250,000 − $50,000) / $40,000 = $11,000 / $40,000 =27.5%

Under Pick. Co.'s job order costing system manufacturing overhead is applied to work in process using a predetermined annual overhead rate. During January Year 1, Pick's transactions included: Direct materials issued to production 90,000 Indirect materials issued to production 8,000 Manufacturing overhead incurred 125,000 Manufacturing overhead applied 113,000 Direct labor costs 107,000 Pick had neither beginning nor ending WIP inventory. What was the cost of jobs completed January year 1?

310,000 Cost of jobs completed (or cost of goods manufactured) equals direct materials used + direct labor + overhead applied + beginning WIP − ending WIP. In this case, the calculation is: COGM =$90,000 + $107,000 + $113,000 + $0 − $0 = $310,000

Black, Inc. employs a weighted average method in its process costing system. Black's work in process inventory on June 30 consists of 40,000 units. These units are 100% complete with respect to materials and 60% complete with resect to conversion costs. The equivalent unit costs are 5 for materials and 7 for conversion costs. What is the total cost of June 30 WIP inventory?

368,000 Materials Conversion Total 40,000 40,000 Percent complete ×100% ×60% Equivalent units 40,000 24,000 Equivalent unit costs ×5.00 ×7.00 Total 200,000 168,000 368,000

Below is info for Brown Inc. COGS 43,000 Beginning Inventory, finished goods 16,000 Ending inventory, finished goods 21,000 What is Browns cost of goods manufactured?

48,000 For a manufacturer, cost of goods manufactured (COGM) is a by-product of cost of goods sold (COGS) and the change in beginning and ending finished goods inventory. Specifically, COGM is equal to COGS + Ending finished goods inventory − Beginning finished goods inventory. For Brown, COGM = COGS ($43,000) + Ending finished goods inventory ($21,000) − Beginning finished goods inventory ($16,000) = $48,000.

A processing department produced joint products Ajac and Bjac, each of which incurs separable production costs after split-off. The following details pertain to a batch produced at a 60,000 joint cost before split off. Product Separable costs Sales value Ajac 8,000 80,000 Bjac 22,000 40,000 What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?

48,000 Using the relative net realizable value method of allocating the joint costs, the net realizable value of both products is calculated as follows: Ajac Bjac Sales 80,000 40,000 Separable costs (8,000) (22,000) Net realizable value 72,000 18,000 The joint costs are allocated based on relative net realizable values. The two products together have a net realizable value of $90,000 ($72,000 + $18,000). Ajac contributes 80% of this total (72,000 / $90,000 = 80%). 80% of the joint costs are thus allocated to Ajac: 80% × $60,000 = $48,000.

Jonathon Manufacturing adopted a job-costing system. For the CY, budgeted cost driver activity levels for the direct labor hours and direct labor costs were 20,00 and 100,000. In addition, budgeted variable and fixed factory overhead were 50,000 and 25,000. Actual costs and hours are listed below: Direct labor hours 21,000 Direct labor costs 110,000 Machine hours 35,000 For a particular job, 1,500 direct labor hours were used. Using direct labor hours as the cost driver, what amount of overhead should be applied to this job?

5,625 Using direct labor hours, the overhead applied consists of both variable overhead and fixed overhead. The calculation is as follows: Variable overhead rate = $50,000 / 20,000 hours = $2.50 per direct labor hour Fixed overhead rate = $25,000 / 20,000 hours = $1.25 per direct labor hour Total overhead rate = $2.50 + $1.25 = $3.75 Overhead applied to the job = $3.75 × 1,500 = $5,625

Maddock Company has the following info below: November 1 November 30 Direct materials 67,000 62,000 Work in process 145,000 171,000 Finished goods 85,000 78,000 Direct labor 200,000 Actual factory overhead 132,000 Direct materials purchased 163,000 Transportation in 4,000 Purchase returns & allowances 2,000 Maddock uses one factory overhead control account and charges factory overhead to production at 70% of direct labor cost. The company does not formally recognize over/underapplied until year end. Maddock's total manufacturing cost for November is:

510,000 Total manufacturing cost is the sum of direct material, direct labor, and overhead applied. Direct material $170,000 [Note A] Direct labor 200,000 Overhead (70% of DL) 140,000 Total $510,000 Note A: Beg. balance direct materials $67,000 Plus purchases 163,000 Plus transportation in 4,000 Less returns & allowances 2,000 Materials available 232,000 Less cost of materials used (170,000) ← SQUEEZE Ending bal. direct materials $62,000

The following is selected information from the records of Ray Inc.: Purchases of raw materials 6,000 Raw materials, beginning 500 Raw materials, ending 800 WIP, beginning 0 WIP, ending 0 COGS 12,000 Finished goods, beginning 1,200 Finished goods, ending 1,400 What is the total amount of conversion costs?

6,500 Conversion costs (labor and overhead) are equal to $6,500 and are derived from the relationship between the finished goods and work in process inventory. Beginning ($1,200) and ending ($1,400) finished goods inventory and cost of goods sold ($12,000) are used to squeeze costs of goods manufactured of $12,200 Cost of goods manufactured ($12,200) is then used in combination with beginning and ending WIP inventories of $0 to derive total costs incurred ($12,200) and then, in combination with materials ($5,700) the conversion costs of $6,500 as follows:

Zig Corp provides the following information: Pretax operating profit 300,000,000 Tax rate 40% Capital used to generate profits 1,200,000,000 (50% debt, 50% equity) Cost of equity 15% Cost of debt (after tax) 5% What represents Zig's year end economic value added amount?

60,000,000 Economic value added (EVA) is computed as after-tax income in excess of required return. EVA is applied to the fact pattern as follows: Pretax operating profit 300,000,000 less: taxes (120,000,000) after tax income 180,000,000 less: required return (see below) (120,000,000) Economic value added 60,000,000 Required return: Weight Capital Return Cost of equity * 50% 1,200,000 15% = 90,000,000 Cost of debt * 50% 1,200,000 5% = 30,000,000 120,000,000

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of 300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for 2 per unit, each CBL sells for 4 per unit. If there are no further processing costs incurred after the split-off point, the amount of joint cost allocated to the mine support braces on a relative sales value basis would be:

75,000 Relative Sales Value MSB 60,000 units x $2/unit =120,000 (120/480 = 25%) CBL 90,000 units x $4/unit =360,000 (360/480 = 75%) Total sales value 480,000 units (100%) Allocation of Joint Costs MSB 25% × $300,000 = 75,000 CBL 75% × $300,000 = 225,000 300,000

The following info concerns Forming's units: Beginning WIP (50% complete) 2,000 Units started during May 8,000 Units completed and transferred 7,000 Ending WIP (80% complete) 2,500 Using the weighted average method, what were Forming's equivalent units?

9,000 Units completed 7,000 Ending WIP (2,500 × .80) 2,000 9,000

An accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is:

Activity based costing

What would cause overhead to be overapplied?

Actual overhead is less than overhead applied Overapplied overhead occurs when the amount of overhead applied exceeds the actual amount of overhead incurred.

The performance measurement tool generally associated with the display of information evaluating multiple dimensions of business outcomes is referred to as the:

Balance scorecard The balanced scorecard reports management information regarding organizational performance as defined by "critical success factors." These critical success factors are often classified as human resource, business process, customer satisfaction, and financial performance, to demonstrate that no single dimension of organizational performance can be relied upon to evaluate success.

Quality programs normally include a number of techniques to find and analyze problems. The technique commonly used to determine zero defects and goalpost conformance is called a:

Control chart A control chart shows the performance of a particular process in relation to acceptable upper and lower limits of deviation. Performance within the limits is termed statistical control. Processes are designed to ensure that performance consistently falls within the acceptable range of error.

What is the normal effect on the numbers of cost pools and allocation bases when an activity base cost (ABC) system replaces a traditional cost system? Cost Pools: Increase or no effect? Allocation bases: Increase or no effect?

Cost Pools: Increase Allocation bases: Increase Activity-based costing (ABC) tends to increase both the number of cost pools and the number of allocation bases. ABC breaks down a production process into many activities. It then accumulates costs by activity (i.e., cost pools) using an appropriate allocation base for each activity. A traditional cost system would use one cost and one allocation base (i.e., for factory overhead). On the other hand, ABC would designate many activities within the process and allocate costs by activity using a different allocation base for each activity.

DJ Co. has a job order cost system. The following debits (credits) appeared in the WIP account for the month of March: March 1, balance 12,000 March 31, direct materials 40,000 March 31, direct labor 30,000 March 31, manufacturing overhead applied 27,000 March 31, finished goods (100,000) DJ applies overhead at predetermined rate of 90% of direct labor cost. Job No. 101, the only job still in process at the end of March, has been charged with manufacturing overhead of 2,250. What was the amount of direct materials charged to Job 1o. 101?

Direct materials charged to job 101 is $4,250. Job 101 is the only incomplete job at the end of the month. First, compute the ending balance in WIP for DJ Co., and note that the ending balance is the same as the ending balance for Job 101. Other facts allow us to back into the direct materials for the job. Total Job 101 Beginning balance 12,000 0 Direct materials 40,000 4,250 (Squeeze) Direct labor 30,000 2,500 (2,250 ÷ 90%) Overhead applied 27,000 2,250 Issued (100,000) 0 Ending balance 9,000 9,000

What method is best suited for evaluating the performance of a firm's capital in any given year?

Economic value added Economic value-added is a measure that uses net operating profit after taxes (NOPAT) and compares it to the required return for the capital. Each of these components is calculated on an annual basis, so this model is well suited for evaluating performance in a given year.

Nonfinancial performance measures are important to engineering and operations managers in assessing the quality levels of their products: Which of the following indicators can be used to measure product quality? I. Returns and allowances II. Number and types of customer complaints III. Production cycle time

I and II only

During the CY, a SBU within Roke Inc. saw costs increase by 2 million, revenues increase by 4 million and assets decrease by 1 million. SBUs are set up by Roke as follows: I Cost SBU II. Revenue SBU III. Profit SBU IV. Investment SBU Given the numbers above, a SBU manager will receive a favorable performance review if she is responsible for a:

II, III, or IV Only the manager of a cost SBU, whose job it is to control costs, would receive an unfavorable review due to the increase in costs. All other SBU managers, due to an increase in revenue, an increase in profits (revenues − costs), and an increase in return on assets (profit/assets), would receive favorable reviews.

Assuming an increase in price levels over time, what asset valuation will produce the highest return on assets?

Net book value Return on assets is calculated as net income divided by average total assets. The lowest denominator will produce the highest return on assets. The net book value (cost minus accumulated depreciation) would produce the smallest denominator.

Smith, Inc. has 1,000,000 of excess working capital that it can use to invest in new projects. Smith currently has the opportunity to invest in two different projects. The first project will require an initial investment of 750,000 and will generate a return of 100,000 per year. The second project requires an upfront investment of 100,000 and will generate 5,000 per year. The company's weighted average cost of capital is 7% and it employs the residual income method for determining which projects to select. What statement describes he best choice the company should make regarding these investments?

Invest only in Project 1 Project 1 has a residual income of $47,500. This is the return of $100,000 minus the expected return based on the weighted average cost of capital ($750,000 × .07 = $52,500). Project 2 has a negative residual income of −$2,000. This is the return of $5,000 minus the expected return based on the weighted average cost of capital ($100,000 × .07 = $7,000).

What correctly classified the business application to the appropriate costing system for Job costing systems nd process costing systems?

Job Costing System - Print shop manufacturer Process Costing System - Beverage drink Job costing is used in the production of tailor-made or unique goods, including: Construction of buildings or ships Aircraft assembly Printing Special-purpose machinery (microcomputer manufacturer) Public accounting firm Management consulting firm Repair shops Industrial research projects Process costing is used where the product is composed of mass produced homogeneous units such as: Gasoline and oil Chemicals Steel Textiles (wallpaper) Plastics Paints Flour Meatpacking Canneries Rubber Lumber Food processing (beverage drink manufacturer) Glass Mining Cement Check clearing in banks Mail sorting in post offices Food preparation in fast-food outlets Premium handling in insurance companies

Under the balanced scoreboard concept developed by Kaplan and Norton, employee satisfaction and retention are measures used under what perspective?

Learning and growth Employee satisfaction and retention measures are used under the "learning and growth" perspective of the balanced scorecard. Employee satisfaction typically correlates with productivity, employee effectiveness, and retention. Retention itself often relates to reduced retraining, increased opportunity for human resource development, and reduced investment in learning curves.

Weighted average and first in, first out equivalent units would be the same in the period when?

No beginning inventory exists FIFO and weighted average produce the same equivalent units when there is no beginning inventory. FIFO is a three-step process, while weighted average is a two-step process. The major difference between the two methods is consideration of beginning inventory amounts by FIFO.

Quality programs normally include a number of techniques to find and analyze problems. The technique commonly used to rank and analyze the individual and cumulative causes of defects is called a:

Pareto diagram

Boyle, Inc makes two products, X and Y that require allocation of indirect manufacturing costs. The following was compiled: Product X Product Y Quantity produced 10,000 20,000 Direct manufacturing labor hours 15,000 5,000 Setup hours 500 1,500 The total cost of setting up is 400,000. The company uses a job costing system with a single indirect cost rate. Under this system, allocated costs were 300,000 and 100,000 for X and Y. If an activity based system is used, what would be the allocated costs for each product?

Product X Product Y 100,000 300,000 The setup hours are used because neither quantity produced nor direct manufacturing hours are activities. The calculation is as follows: Setup Hours % of Setup Hours Allocation Product X 500 500 / 2,000 = 25% $100,000 Product Y 1,500 1,500 / 2,000 = 75% $300,000 Total 2,000 100% $400,000

Return on Investment is criticized as a performance measure since it is not a well balanced measure. What characteristic of effective performance measures does the ROI lack?

ROI does not balance long and short term issues

The segment margin of an investment center after deducting the imputed interest on the assets used by the investment center is known as:

Residual income Residual income is the segment margin of an investment center after deducting the imputed interest (hurdle rate) on the assets used by the investment center.

Arbor corporation uses a water cooling system in its manufacturing operations. Gallons of water purchased for engine cooling increases with manufacturing production. Water and sewer utility costs recorded y the Arbor Corporation are billed to the company based on a minimum charge plus a rate for utilization beyond the minimum charge for 5,000 gallons of usage. Arbor would most likely classify its utility costs as:

Semivariable costs Utility costs are Semivariable. Utility costs share the characteristics of both fixed and variable costs over the relevant range. They are unchanged for the first 5,000 gallons (fixed) and then increase per gallon used in excess of 5,000 gallons after the threshold (variable).

What is true regarding Pareto diagrams?

They display the individual and cumulative frequency of quality issues, defects or problems. Pareto diagrams combine the elements of a histogram of quality control issues displayed in order of most to least frequent with a line graph that displays the cumulative occurrence of the problems.

What incentive design will most likely encourage the use of nonfinancial measures by a manager?

Tying incentives to the manager's individual effort Managers are more likely to use nonfinancial measures if they are tied to the managers individual effort and, by extension, the manager can control the outcome.

Multiple or departmental overhead rates are considered preferable to a single or plant-wide overhead rate when:

Various products are manufactured that do not pass through the same departments or use the same manufacturing techniques

A cost driver is defined as:

a casual factor that increases the total cost of a cost objective

All of the following statements about ROI are correct except: a) ROI is an outstanding performance measure since it motivates managers to delay or avoid investing in new plant, property and equipment b) ROI targets are designed to motivate managers to achieve target levels of net earnings on company resources c) ROI is expressed as a percentage of profit to investment d) delayed investment in new plant, property and equipment generally makes achievement of ROI targets easier

a) ROI is an outstanding performance measure since it motivates managers to delay or avoid investing in new plant, property and equipment While it is true that ROI can motivate managers to delay or avoid investing in new PP&E, this is often an inappropriate business decision. The company with very old PP&E may have very high ROI measures but could be more profitable with newer, more efficient PP&E.

Strategic business units (SBU's) are classified into different types based on the responsibility levels assigned to their managers. Which SBU has the least amount of responsibility? a) cost SBU b) revenue SBU c) profit SBU d) investment SBU

a) cost SBU Managers in a cost SBU only have responsibility for one dimension of financial performance and it is one that they control entirely, the level of costs incurred. Revenue SBUs represent a greater responsibility than cost SBUs. Managers of a revenue SBU only have responsibility for one dimension of financial performance, but revenue generation is not under the control of the managers. Clearly the uncertainty associated with generating sales increases the risk and difficulty associated with the manager's responsibility. Profit SBUs represent a greater responsibility than either cost or revenue SBUs. Profit SBUs require the manager to maintain control of revenues, and costs AND the relationship between the two. Investment SBUs represent the organizational segment with the highest level of responsibility. Managers not only consider cost, revenues and their relationship, but also the relationship between profits generated and assets invested.

Which of the following is one of the four perspectives of a balanced scoreboard? a) innovation b) benchmarking c) just in time d) activity based costing

a) innovation The balanced scorecard typically defines organizational performance in four dimensions including innovation, customer satisfaction, internal business processes and finance.

A manufacturing company has several product lines. Traditionally, it has allocated manufacturing overhead costs b/w product lines based on total machine hours for each product line. Under a new activity based costing system, which of the following overhead costs would be most likely to have a new cost driver assigned to it? a) depreciation expense b) employee benefits expense c) repair and maintenance expense d) electricity expense

b) employee benefits expense Activity-based costing seeks to assign overhead costs in a manner that identifies consumption of resources. Employee salaries or even head count are more appropriate cost drivers than machine hours for employee benefits expense. Machine hours would be more likely identified as cost drivers for electric, repairs and maintenance, and depreciation expense.

Strategic Business Units (SBUs) are classified into different types based on the responsibility levels assigned to their managers. Each of the following items are reasons for classifying SBUs at cost, revenue, profit, or investment, except to: a) isolate financial instrument for segment performance b) highlight different responsibility levels among managers in highly centralized organizations c) promote goal congruence d) communicate segment goals to managers for improved operational and financial control

b) highlight different responsibility levels among managers in highly centralized organizations Strategic Business Units are established in a decentralized environment not a centralized environment. Highlighting different responsibility levels in centralized environments is not a reason for using cost, revenue, profit and investment SBUs.

The total quality management process identifies each of the following cost o quality, except: a) external failure costs b) investment costs c) internal failure costs d) prevention costs

b) investment costs Quality is defined as a product's ability to meet or exceed customer expectations. Costs of quality include conformance costs (prevention and appraisal costs) and nonconformance costs (internal failure and external failure costs).

Conversion costs do not include: a) indirect materials b) direct labor c) direct materials d) indirect labor

c) direct materials Conversion costs consist of direct labor and overhead. Accordingly, conversion costs include all product costs except direct materials.

All of the following are appraisal costs, except: a) inspection b) statistical quality checks c) employee training d) testing

c) employee training Employee training costs are an example of prevention costs.

In allocating factory service department costs to producing departments, which one of the following items would most likely be used as an activity base? a) direct materials usage b) units of product sold c) units of electrical power consumed d) salary of service department employees

c) units of electrical power consumed Units of electrical power consumed would be a good indication of producing departments' demand on the service department.

Which of the following performance measures is nonfinancial? a) economic value added b) return on investment c) gross profit margin d) percentage of defective products

d) percentage of defective products

The essence of responsibility accounting is:

developing performance reports emphasizing costs and revenues that managers can control. Responsibility accounting is associated with performance reports and a focus on revenues and costs that are within the control of the manager being evaluated. Managers are not held accountable for revenues and costs that are outside their control.

A basic assumption of activity based costing is:

products or services require the performance of activities, and activities consume resources. Activity-based costing divides the production process into activities where costs are accumulated. The production process assumes activities consume resources (direct materials, direct labor, and manufacturing overhead), and that the outcome of the production process requires performance of the activities.

In managerial accounting, the term "relevant range" is often used to describe

the range over which relevant costs are incurred

The optimal imputed interest rate used in residual income can best be described as:

the target return on investment set by the company's management

What is true regarding nonfinancial measures of a process?

they are best viewed as attention directors Nonfinancial measures are an effective way to observe problems as they occur and thereby direct attention to potential errors or inefficiencies before poor financial results are produced.

What is true regarding a relevant range?

total fixed costs will not change The relevant range is the range within which the relationship between a cost and its cost driver remain valid. Within this range the fixed cost will remain fixed and the variable cost per unit will not change.